Private & Federal Loan Details

Once you’ve received your acceptance letters, you’ll start comparing schools with a more critical eye to choose where you will go. Two of the most impactful factors when choose a school are how expensive it is and what aid and loans you can obtain to cover the cost. As you start looking at loans you’ll probably have a lot of questions. Loan agreements can seem very complicated to the average borrower. We’ll help you understand the role student loan rates play in the decision-making process, the difference between subsidized and unsubsidized federal loans, the benefits of student loan consolidation, and how properly using your student loan statement can help you pay on time each month.

Student loan interest rates

Pay attention to the impact of student loan rates

Student loan interest rates are one of the single largest factors when selecting the right mix of financing options to help you pay for your post-secondary education.

The impact of student loan interest rates is a major reason to first examine your options for federal student loans. Student loan interest rates vary, and they fluctuate with the economy. Federal loans generally come with lower interest rates than private loans available through banks or credit unions, due to government subsidies. But you may be able to find private student loan rates that are comparable to the federal interest rates and have other, more flexible terms that align with your needs.

Over time, the accrued interest you'll have to pay on the loan can represent even more than the original amount you borrowed. And the longer your repayment period is, the more interest you will accumulate. That’s why is so important to choose a student loan with low rates.

There are two broad types of student loan interest rates—fixed and variable. As the words imply, fixed rates do not fluctuate, but remain stable for the life of the loan. Variable rates fluctuate based on the broader economy and Federal Reserve policies. The new rates for federal loans are instituted on July 1st of each year. Consequently, private student loan rates can adjust monthly or quarterly throughout the year.

Pay attention to the APR

It’s important to look beyond interest rates as well. One effective way of making valid apples-to-apples comparisons between competing loans is to check the APR (annual percentage rate) of the loan. You'll want the lowest possible APR you can get. An APR is expressed as a percentage and includes the annual cost of a college loan, factoring in both interest and any fees.

An example how student loan interest works

You'll find a host of calculators and other tools online that will help you calculate what you would owe each month on various loans under various repayment plans, based on the student loan interest rate and repayment period of the loan. But to make student loan rates more tangible, here’s an example of how to calculate monthly interest at Citizens Bank (please note, this may vary by lender):

Start by determining the interest rate factor. This is done by dividing the student loan interest rate by the number of days in a year (365.25). Then, you can use the following formula to find your monthly interest payment (remember that interest accrues daily on most student loans):

Number of days since your last payment
X
Principal balance still outstanding
X
Interest rate factor
=
Interest amount

The calculation:

For the sake of argument, let's pretend the remaining balance on your loan is $9,500. Your interest rate is 8.25%. That means, in this example, the interest rate factor is 0.00022587. It’s been thirty-two days since your last payment.

Therefore, if you sent in a payment of $160 on this day, that payment would be $68.66 interest and $91.34 principal under this example. This would leave you with a loan balance of $9,408.66 at the end of the first month. If you wish to pay more toward the principal (or balance of the loan), you can increase your payment amount above $160 and specify that any funds above the $68.66 go toward the principal.

Learn more about our affordable Citizens Bank Student Loan™

Find helpful information about our affordable Citizens Bank Student Loan™. If you still have questions, call a student loan specialist at 1-800-708-6684, and we'll help walk you through the process.

Subsidized vs. unsubsidized federal loans

Learn the differences between unsubsidized and subsidized student loans

When comparing student loan options and financial aid award packages, it’s important to understand the difference between Federal Direct subsidized and unsubsidized loans. Subsidized federal loans like Federal Direct are loan programs where the government pays the interest on the loan while the student is enrolled in school.

It’s a good idea to consider subsidized college loans first as they can lower the total interest you pay and will defer repayment of the loan. However, most federal loans will not be able to cover the entire cost of college and you’ll want to supplement them with private student loans.

Subsidized federal student loan details

A subsidized federal loan is one in which a borrower is not responsible for paying the interest while they’re still in school, during a grace period or during deferment. Subsidized loans are awarded to those students who demonstrate a financial need. Your eligibility for a Federal Direct Subsidized Stafford Loan is determined by your Free Application for Federal Student Aid (FAFSA) results and is awarded to you by the school’s financial aid office. There are several types of subsidized loans including the Federal Subsidized Stafford and Consolidation Loans:

Direct subsidized loans

Direct subsidized consolidation loans

Federal subsidized Stafford loans

Federal subsidized consolidation loans

Schools usually only participate in either the direct loan program or the federal loan program. However, a few schools do both but it's not common, so check with your school to see which program they participate in. It's also important to keep in mind that students can only be awarded one type of subsidized loan in a given year—either a federal subsidized loan or a direct subsidized loan.

Unsubsidized private and federal student loan details

Unsubsidized private and federal loans apply interest to the loan amount from the start. Interest on unsubsidized loans begins accruing upon disbursement (or upon enrollment in school), and continues through the full life of the loan. All students are eligible for unsubsidized loans which includes the Federal Direct Unsubsidized Stafford Loan. Unsubsidized loans can include:

Direct unsubsidized loans

Direct PLUS Loans

Direct unsubsidized consolidation loans

Federal unsubsidized Stafford Loans

Federal PLUS Loans

Federal unsubsidized consolidation loans

Again, schools usually only participate in either the direct loan program or the federal loan program, so check with your school to see which program they participate in. Similar to subsidized loans, students can only be awarded one type of unsubsidized loan in a given year—either a federal unsubsidized loan or a direct unsubsidized loan. The same goes for the PLUS loan. Parents can only take out a Direct PLUS Loan or Federal PLUS Loan in any given year (but not both) so check with your school to see what program they participate in.

Learn more about affordable student loan options from Citizens Bank

You can find helpful information about financing your college education, including federal and private loan options. If you are interested in additional student loan resources or have questions, call a student loan specialist at 1-800-708-6684, and we'll help walk you through the entire process of financing your child's education.

Understanding student loan consolidation

Find out why student loan consolidation may be the best option in some cases

Many families have to take out multiple loans for students to cover the cost of education. If you fall into this category, it might make sense to investigate student loan consolidation as it would roll all of your costs into a single loan.

Why consolidate?

It’s easier to make a single payment to a single institution

You’ll generally secure lower student loan interest rates

You’ll lower your monthly payments

Other things to keep in mind:

Lower monthly payments usually come with increased interest over the life of the loan, which can add thousands of dollars to your repayment total. It may be best to consider consolidating if you’re currently having trouble meeting your monthly repayment amount, or will be receiving a much better student loan rate. Keep in mind, you can always pay more than the required monthly payment each month if your financial situation changes.

Loan benefits you’re currently receiving may be replaced with different ones when you consolidate loans.

Private consolidation loans are based on your credit score and/or that of your cosigner’s. You may qualify for a lower rate if you apply to consolidate with a cosigner who has excellent credit.

Understanding your student loan statement

Take the stress out of paying your student loan by understanding the obligations

The moment of truth has arrived.

You’ve graduated from college, your grace period has ended, and you’ve just received your first student loan statement. It’s time to start repaying your student loans.

The good news is that by paying close attention to the due dates in your student loan statement and paying on time each month, you’re taking a giant step in the direction of building a good credit history. In coming years, that good financial reputation will help you accomplish everything from buying a house and securing attractive rates on your car loan to getting your dream job (yes, many employers actually run credit checks on job applicants).

Focus on the important details in your student loan statement

Your student loan statement is emailed or mailed to you each month and contains all the information you’ll ever need to keep current on your loan. Read it carefully to get all the details right. The most important details, of course, are the notations about the amount of the payment and the date on which it is due.

Make sure to pay the full amount listed on your student loan statement each month before the deadline to stay current. Failure to do so can result in your falling into delinquency. This can then lead to you either being reported to a credit agency, which can hurt your credit score, or defaulting on your loan. If the “payment due date” on your student loan statement has passed, that means your loan is already past due. You’ll need to take care of that immediately.

If you're paying your college loans by U.S. postal mail, remember to detach the indicated portion of the student loan statement and include it with your check, which should also contain your account number in the memo line.

You should also:

Keep good records of all the activity on your student loan, both to resolve any possible future discrepancies that might arise and for the purposes of your tax return. The interest you pay may be deductible (check with a tax advisor).

Consider setting up automatic payments from your student checking account, so you don’t have to remember to make the payment each month. You’ll still need to pay attention to your statements, either online or through the mail. And of course, you'll need to make sure you have enough in the account to cover the debit each month.

Keeping close track of the information contained on your student loan statements is a cornerstone to building a strong credit score, which is in turn a key part of building a strong financial future.